According to HUD, Foundation Funding also failed to implement a HUD-mandated quality control plan that requires lenders to make adequate and timely reviews to detect possible violations, including fraud.

HUD also has withdrawn FHA authority from a California mortgage company for three years.

Omega Financial Services of Whittier, Calif., used falsified documentation in originating FHA loans and failed to implement a quality control plan in compliance with HUD requirements, according to the housing agency.

"We took these enforcement actions to protect the FHA insurance fund and FHA borrowers," said HUD Federal Housing Commissioner John Weicher. "Lenders who think about breaking the rules should take notice that HUD will aggressively enforce its rules and the consequences can be severe."

The Morgagee Review Board is comprised of Weicher and six senior HUD officials.

The board also proposed a three-year withdrawal of FHA approval from three lenders in New Jersey, Tennessee and Utah for violating a number of FHA requirements, including improperly qualifying loan applicants, failing to implement a quality control plan, failing to remit up-front mortgage insurance premiums and failing to submit loans for endorsement to FHA in a timely manner.

The proposed withdrawals become effective in 30 days without any further action by HUD; however, the lenders may appeal the proposed withdrawal during the 30-day period.